First Look

September 26, 2006

Does information technology matter? That heat-generating debate flared several years ago and has not really died down. Of course IT matters. The question is whether it provides competitive advantage if all competitors use similar technologies the same way. In a new working paper, "Scale Without Mass: Business Process Replication and Industry Dynamics," the authors find that "IT can enable firms to more rapidly replicate improved business processes throughout an organization, thereby not only increasing productivity but also market share and market value." Among the nine case studies released this week are an updated look at the war over competing DVD standards (Blu-ray versus HD-DVD), another on building a team (and a boat) using a teamwork approach pioneered at Toyota, and a third exploring the challenges of managing a family-run business ("Uncle Charles, let's do your performance review").
— Sean Silverthorne

Working Papers

Scale Without Mass: Business Process Replication and Industry Dynamics


Since the mid-1990s, productivity growth has accelerated in the U.S. economy. In this paper, we identify several other changes in the economy that have occurred during the same time and argue that they are consistent with an increased use of information technology (IT) in general and enterprise information technology in particular. In a series of case studies, we find that IT can enable firms to more rapidly replicate improved business processes throughout an organization, thereby not only increasing productivity but also market share and market value. We develop a simple model that shows how this process will increase both turbulence and concentration in affected industries. We then document a substantial increase in firm-level turbulence starting in the 1990s, as measured by the average intra-industry rank change in sales, enterprise value, and other metrics. Furthermore, we find that IT-intensive industries account for most of this increase in turbulence, especially after 1996. Before 1996, IT-intensive industries were becoming less concentrated than non IT-intensive industries; this situation reversed in the late 1990s. The combination of increased turbulence and concentration, especially among IT-intensive industries, is consistent with an increasingly Schumpeterian style of competition. We conclude that the improved ability of firms to replicate business innovations has affected not only productivity, but also the nature of business competition itself.

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Cases & Course Materials

AtHoc: Dealing with Disruption

Harvard Business School Case 806-073

Follows the growth of an entrepreneur from his early startup activities. As the company evolves from 1998 to 2005, looks at key decisions and turning points as AtHoc's strategy adapts in response to changing market environments, business opportunities, and customer needs. At the close, the company has successfully navigated several rounds of VC financing and is weighing harvest strategies and next steps.

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Codon Devices

Harvard Business School Case 806-198

In December 2005, 40-year-old John Danner was about to make his first presentation to the board of directors of Codon Devices, a one-year-old biotechnology start-up based in Cambridge, Massachusetts. After a month as the company's CEO, Danner was prepared to lay out his strategic plan for the firm. The company was rapidly capturing share in the billion dollar DNA-synthesis market. Codon had several distinctive features for a company its size and age: it was already generating revenue from several different types of customer for its genetic products; it looked capable of revolutionizing the fragmented DNA-synthesis market; it received extraordinary support from its oversized Scientific Advisory Board; it had developed and secured a strong intellectual property portfolio that creates high barriers to entry for any new market entrants; and, it had $13 million of venture capital investment from Flagship Ventures, Khosla Ventures, Kleiner-Perkins, and others.

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Harvard Business School Case 706-504

In 2006, the DVD was the most popular storage medium in the entertainment and computer industries. The development of high-definition (HD) technology created a need for a format with greater storage capacity. Instead of agreeing on a single standard for a new HD disc, however, key players had formed two rival camps. The Blu-ray and HD-DVD formats each had distinct technical advantages and enjoyed the support of different groups in the consumer electronics, personal computer, and entertainment industries. Set at a time when companies were starting to release products for each format, this case includes a brief history of the format war along with information on the rival camps and their product offerings. Also, covers factors that might affect the future course of this battle, such as the role of copy protection features in HD devices, the bundling of each format with video game consoles, and competing modes of delivering video content. A revised version of an earlier case.

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Improving Performance: Boat Building Exercise

Harvard Business School Exercise 606-147

Provides a framework for team problem solving and process improvement following concepts widely attributed to Toyota Motor Co.

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Matthew A. Hunter

Harvard Business School Case 806-203

Matthew Hunter, CEO of a second-generation family business, must manage the performance of a key manager in his company. Looks at the impact of family relationships on performance management.

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Strategic Outsourcing at Bharti Airtel Ltd.

Harvard Business School Case 107-003

Faced with exponential growth and a competitive telecom environment, Bharti looks for ways to better manage its capital expenditures for telecommunications and information technology. One option is to hand over management of its telecom and IT networks to its vendors. Explores the pros and cons of such an outsourcing arrangement for a company in an industry where technological superiority is considered an essential element in competitive strategy.

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Tropos Networks

Harvard Business School Case 806-201

As Ron Sege, president and CEO of Tropos Networks, walked through the halls of the firm's offices, he realized that the space they had moved into only about a year ago was already becoming too small. The company, based in Sunnyvale, California, was founded in late 2000 to provide wireless broadband access. By 2005, the company was primarily focused on supplying metro-scale wireless fidelity (Wi Fi) mesh networking products and services. Tropos began shipping products in September 2003, and by December 2005 the company had over 300 customers and 60 resellers in 29 countries. Accordingly, the company's head count grew from 65 in 2004 to 103 in 2005 and was expected to reach 150 by the end of 2006.

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Vignette: Bombay Tyre Manufacturing Ltd

Harvard Business School Case 806-207

Presents a U.S.-based investor who had taken a minority position in a publicly owned manufacturer in India. The company's controller is not performing and the stock price is suffering because of delayed and disappointing results. Removing the controller, however, is proving difficult because he is related to the company's founder. What approaches can the investor take to deal with the situation?

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Winning Legally: Using the Law to Create Value, Marshal Resources, and Manage Risk

Harvard Business School Note 806-138

Describes the four components of legal astuteness: the attitudes, proactive approach, judgment, and knowledge necessary to manage the legal aspects of business effectively. Identifies a number of legal tools legally astute managers can use during different phases of business development to create and capture value and manage risk. This is a rewritten version of an earlier note.

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Business Solutions for the Global Poor: Creating Social and Economic Value


Business Solutions for the Global Poor brings together leaders from Harvard Business School who discuss theory with practices from the world's top corporations to show how businesses, NGOs and government organizations can use business solutions to add social value to the world's poorest communities.

The Relation between Corporate Financing Activities, Analysts' Forecasts and Stock Returns


We develop a comprehensive and parsimonious measure of corporate financing activities and document a negative relation between this measure and both future stock returns and future profitability. The economic and statistical significance of our results is stronger than in previous research focusing on individual categories of corporate financing activities. To discriminate between risk versus misvaluation as explanations for this relation, we analyze the association between our measure of external financing and sell-side analysts' forecasts. Consistent with the misvaluation explanation, our measure of external financing is positively related to over optimism in analysts' forecasts.

Fighting AIDS, Fighting Poverty: Customer Centric Marketing in the Generic Antiretroviral Business


It is more than mere coincidence that the incidence of HIV/AIDS occurs in the world's poorest countries. Of the more than 40 million people currently living with HIV, 95 percent are in the developing world. Various models have been proposed to reduce the incidence of the pandemic. Most have not been very successful. An examination of three strategies for distributing antiretroviral drugs (ARVs) to patients in three countries on three continents, Africa, Asia, and South America, suggests a customer centric marketing paradigm. Each case is based on identifying patient needs and working backwards to develop profitable solutions rather than starting with the government, pharmaceutical or healthcare industry or NGO. The examination is undertaken on two levels, a macro level that focuses on governments and healthcare providers, and a micro level focused on the key corporate players. There having been much writing and discussion at the macro level, the present contribution focuses specifically on the role of the modern corporation in dealing with poverty-related problems such as HIV/AIDS. An examination of the role of corporations involved in finding solutions to the HIV/AIDS crisis must take into account the economics of ARV pricing strategies, the politics of the patent environment, and the strategic choices that have enabled these organizations to be profitable while serving the poor. A new dedication of public support and the collaborative expertise of South African generic drug manufacturer Aspen Pharmacare are shown to be ameliorating misguided policy decisions by the South African government; communications campaigns, operational synergies, alternative distribution channels, and innovative product and program policies enabled the small Indian pharmaceutical company, Cipla, to bring down the annual per-patient cost of an ARV triple cocktail from $12,000 to under $250; using ARV development as a key component of its prevention and treatment strategy the Brazilian National AIDS Program has managed to reduce AIDS mortality and demand for hospital services by more than 50 percent in Sao Paulo and Rio de Janeiro, saving the government more than $3 billion. These cases offer suggestions for global strategies for confronting AIDS and other problems faced by developing countries, with guidelines for setting customer centric, profitable business strategies.

Exercising Moral Courage: A Developmental Agenda


While the decision to pursue a managerial career is a carefully considered one for most management students, like many inexperienced managers, these students are often blinded to the realities of management by their personal motivation and ambition. Often, management students arrive at business schools with an underdeveloped moral compass; they are largely unaware of their ethical blind spots. Ethical judgment is learned and cultivated over the course of a career, but it begins with an understanding of one's personal values. Since many management students, especially those at leading business schools, have limited experience with adversity, they seldom have spent significant time self-reflecting about ethical matters. In using case studies that demonstrate how well-intentioned people can all too easily slide down the slippery slope of unethical behavior, educators of management students can prepare students to take charge of what will be life-long development. Students need to unlearn the myths about management as well as understand the importance of using power vigilantly. They must begin to see business as a societal force that requires more than avoiding ethical wrongdoing; it is about making a positive difference in others' lives and communities. The idea is to show students that they can expand the zone of acceptability within which companies operate. Other worthy questions include: Who do I really work for? What are my rights and privileges? What are my duties and obligations? How do I assess my impact (intended and unintended)? What really matters to me? Who has benefited from business? Who should? In order for management students to exercise moral courage, they must reflect on their own beliefs and pursue a developmental agenda that considers the importance of economic interest as well as ethical judgment.

A Gentler Capitalism: Black Business Leadership in the New South Africa


Through her efforts to recruit, hire and develop minority executives at MTN, a South African telecommunications company, Charnley attempts to bring a gentler capitalism to post-apartheid South Africa. Like her other colleagues on the Black Economic Empowerment (BEE) Commission, Charnley believed that each black business executive had a responsibility to effect positive change in their particular company, and that through their collective efforts they could have a powerful collective impact on the country. By the time of the BEE Commission Charnley found herself at the top of the pyramid, but she had come from the bottom, growing up in Elsies River - an Afrikaans-speaking, Colored area outside of Cape Town. This paper begins with a description of the economic conditions in apartheid and post-apartheid South Africa, then details the BEE Commission, and finally narrates Charnley's story.

When Giants Discover the Disadvantaged

Measuring Consumer and Competitive Impact with Elasticity Decompositions


In this article, I discuss three methods of decomposing the elasticity of own-good demand. One of the methods, the decision-based decomposition (Gupta, 1988), is useful in determining the influence of changes in consumers' decisions on the growth in own-good demand. The other two methods, the unit-based decomposition (van Heerde, Gupta and Wittink, 2003) and the share-based decomposition (Berndt et al., 1997), are useful in determining whether the growth in own-good demand has been stolen from competing goods. The objective of this article is to provide a clear and accurate method that attributes the growth in own-good demand to changes in: (1) consumers' decisions, (2) competitive demand, and (3) competitive market share. I will accomplish this by settling some confusion about what the decision- and share-based decompositions mean, by discussing how each of the decompositions relate to the others, and by discussing the research questions that each of the decompositions can answer.